Avoiding Digital Self-Destruction

bkirschner

Sep 23, 2015

You can hear how digital is driving growth straight from CEOs at some of today’s digital leaders like Nike.

And top-flight sources are documenting digital’s part in a broader pattern: MIT’s Center for Information Systems Research found that companies that derived 50% or more of their revenues form digital ecosystems had 32% higher revenue growth and 27% higher profit margins than their industry averages.

For most executives, the question is not whether digital matters but rather “how we get there” to seize the opportunity (or stave off a threat).

To that end, the Apigee team has been putting together an agenda for I Love APIs 2015 that includes real-world advice on how to engage corporate boards on thinking big about digital as well as how to re-tool IT to deliver digital experiences.

In this post, we’ll focus on what happens between communicating a great vision and a spring into action by digital-ready teams. We see a risk that executives and managers otherwise committed to digital transformation could be their own worst enemies.

Better at digital, better at business

In our own research with over 1,300 companies, we’ve found that stronger digital capabilities are associated with better business outcomes. The top 50% of companies at deploying apps, operating APIs, and using data analytics—who we call “digital leaders”–are on average two-and-a-half times more likely to strongly outperform their peers than the bottom 50% (the “digital laggards”).

Comparing what executives at digital leaders and digital laggards characterized as “a liability”— something that could hold their company back on digital transformation—shines a spotlight on the importance of how decisions get made (a process influenced by policy and culture) as a critical determinant of success.

In my experience, most big companies feel competitive pressure, but also have some degree of confidence they can handle it (after all, they got big). Most large enterprises (whether they have a chief digital officer or not) have a fairly similar overall organizational structure.

Consistent with these observations, comparable percentages of executives at both leading and lagging companies flag market conditions or company performance and their existing org structure as “a liability that could hold the company back on digital transformation.”

But when it comes to “the way major business decisions are typically made,” digital laggards spike up to a full half (51%) calling it a liability—compared to just more than a third (35%) of digital leaders. This represents a 16-point gap.

Decision-making anti-patterns

This calls to mind anti-patterns I’ve seen of decision-making processes compromising a vision or hamstringing execution. Here are two real-world examples:

The company has an enterprise-wide digital strategy. But the team chartered with implementation has to approach multiple lines of business and convince each to bear part of the cost through chargebacks. Now the vision and roadmap is subject to negotiation with numerous teams who may have their own locally optimal but globally suboptimal conditions for buy-in.

IT has built agile capabilities but funding allocation or re-allocation decisions are made in quarterly (at most) meetings dominated by PowerPoint and debate rather than structured data. The opportunity to deliver minimum viable products to market along with well-structured A/B tests to decide what to “fail or scale” on close to a real-time basis gets squandered.

The blurred boundary between strategy and execution

There are two patterns for successfully evolving the decision-making process that we’ve observed and woven into sessions at I Love APIs 2015 for developers, technologists, and business strategists:

“Test and learn” is more powerful than “present and debate.” A digital experience is based on a strategic hypothesis that a desired customer or partner interaction will have business value, and a delivery hypothesis that the chosen implementation will enable a successful interaction. Connected digital experiences are an opportunity to bring strategy and delivery together to use data at pace and scale to confirm or course correct. Digital leaders are seizing this opportunity: McKinsey & Company notes that “digital strategy also increasingly blurs the boundaries between strategy and execution. In fact, 60 percent of digital leaders run strategy by experimentation through limited releases and prototyping.

The innovation you need to compete can’t be “bolted on.” Jerry Wolfe, former CIO at McCormick & Co., current CEO of Vivanda, and I Love APIs 2015 speaker, offered his peers some advice at this year’s MIT CIO Symposium: “Carve out some funding and sponsor some innovation. Test and learn your way through it, but protect it. Don’t ask the pieces of your business that are responsible for delivering incremental growth and managing downside risk to step into white space.” In a time of change, the degree of innovation that you need to compete may be wildly out of scale with the capacity of existing lines of business to invest in any given time period. A business unit or units with a P&L optimized for stability and predictability is a risky vehicle on which to bet a transformation strategy about the future of the company that may be as extreme as moving from a product to services business.

Unlike competition, how decisions get made in the enterprise is something executives and managers can control. Take the challenges head on to avoid digital self-destruction. I Love APIs 2105 can help you do this.